Australians from all walks of life should brace for a serious tightening of federal government expenditure, Joe Hockey has warned, but it appears older Australians will be asked to do some of the heaviest lifting in a budget repair task being pitched as a moral and economic necessity.
Hockey targets pensions
The Treasurer makes his clearest case yet for cutting spending on aged pensions as he prepares next month's budget.
In a key note speech just weeks before his first budget, the Treasurer has railed against the unsustainability of the age pension, the growing cost of aged care services, and the drain on the budget from the Pharmaceutical Benefits Scheme, which he noted was weighed down with 80 per cent of its costs coming from concessional usage.
"The problem we have is that the volume of demand for these programs is outstripping the capacity of taxpayers to fund them," Mr Hockey warned.
"Between 2010 and 2050 the percentage of people of working age supporting those over the age of 65 in Australia will almost halve.
"So the policies must be changed, either now or more dramatically in the future."
Announcing that the long-withheld Commission of Audit report would finally be released next week, the Treasurer said the budget would draw some recommendations from the report but the government would either delay or reject others.
He said every sector of the community would be affected including households, corporates, and the public sector.
In an effort to drive the budget back into the black, he said it would contain significant across-the-board spending cuts and would also feature wider use of means testing for welfare benefits and the more extensive use of co-payments for services until now free of such user charges.
That appeared to vindicate reports that a new $6 fee for GP visits to be met by the patient could be in the the offing as well as possible payments for hospital services, and other government provided benefits.
Mr Hockey said the charges would "encourage moderation in demand for services", noting that "nothing is free - someone always pays".
Mr Hockey is expected to outline a slightly faster return to surplus than has previously been foreshadowed with an accompanying graph in his speech showing the government's balance sheet could achieve balance in 2018-19 on a path towards a solid surplus of 1 per cent of GDP by 2023-24.
The speech, a keynote address in Sydney on Wednesday evening, was designed to frame the public debate before the budget.
Citing what he dubbed "a strong economic and moral imperative to change course", Mr Hockey said it was only by getting back to surplus that the country could stop borrowing money - which this year alone meant an interest bill of $12 billion or "about the same as we spend on higher education".
Having previously called for an end to the "age of entitlement", Mr Hockey spent some time in his speech focusing on the expanding cost of the age pension, arguing that as the population ages it places an increasing burden on other people.
"Of Australians over the age of 65, four out of five receive a full or part pension," he said.
"If we also take into account the concessionary health card, then only 14 per cent of older Australians receive no government payments.
"Despite spending billions of dollars in taxation benefits for superannuation, by 2050, the ratio of Australians receiving a full or part pension will still be around four out of five.
He said aged care was "now the eighth largest category of spending".
"We spend more on aged care than we do on higher education or child care.
"And the Pharmaceutical Benefits Scheme is the 10th largest category of spending.
"Nearly 80 per cent of the scheme’s expenditure is attributable to concessional recipients."
Asked whether he was committed to maintaining Labor's Gonski school funding reforms in the May budget, which detailed funding for six years, Mr Hockey said he was not.
“Our commitment was to fund [the Gonski reforms] four years and we will stick to it,'' he said.
Mr Hockey also ruled out an increase in the GST ''during this term of government''.
"Clearly there is an imbalance in the Australian taxation system, but we will take that to the next election,'' he said.
Mr Hockey revealed the Commission of Audit had recommended that real spending growth be capped at no more than 1.75 per cent if the budget was to have any chance of returning to a long-term goal of achieveing a surplus equal to 1 per cent of GDP.
Labor's spending growth target was a maximum 2 per cent but it never achieved that after the stimulus splurge needed to avoid a GFC-led recession.
The opposition immediately criticised the Hockey speech as an alibi for broken promises.
"The Abbott government created their own budget emergency, and now they are telling pensioners to pay for it," said Opposition Leader Bill Shorten.
"If the Prime Minister is so desperate to cut, he should leave pensioners alone and start with his extravagant paid parental leave scheme.
"The Prime Minister promised ‘no change to pensions’ and he can’t talk his way around that, try as he might."
Paid Parental Leave
Bank of America Merrill Lynch chief economist Saul Eslake also questioned the merits of the paid parental leave scheme, saying he was not convinced by the Coalition's arguments for its plan .
"There's a lot of evidence to suggest that the single biggest factor containing female participation, especially by women who are of child-bearing and rearing age, is the cost of childcare and the government isn't proposing to do anything new about that," Mr Eslake told ABC TV's 7.30 on Wednesday night.
"All it is proposing is a vastly expanded version of the Howard government's baby bonus funded by what amounts to a redistribution of income from big businesses to small ones.
''No wonder, as the Treasurer said tonight, it's popular with small and medium businesses because in effect it's taking money from large corporations and giving it to them. But in my view, it will do next to nothing to lift either participation of women in the workforce or productivity of those who are in the workforce."
Opposition finance spokesman Tony Burke on Thursday rubbished the Treasurer’s bleak portrait of the budget.
‘‘Countries that have triple-A credit ratings are not in the midst of a budget crisis,’’ Mr Burke told ABC Radio.
‘‘None of the information that Joe Hockey’s referring to there is new. They’re wanting to pretend that they’ve just realised this through the commission of audit.’’
Mr Burke said the Coalition's election pledge of no changes to pensions was ''on the chopping block."
''There is no doubt they are gearing up to take the axe to pensions, to break that election promise," Mr Burke said.
Mr Burke said Mr Hockey's rhetoric on reining in spending was at odds with the Coalition's more generous paid parental leave scheme.
"There is just no credibility in the Treasurer standing up and talking about the age of entitlement being over, when at the same time, they're introducing a scheme which is all about providing more for those who have more, when they're wanting to actually make cuts to pensions,'' he said.
Mr Burke said under the Coalition's proposed scheme, a shop assistant earning $18,000 a year would get $9000, while "if you're a millionaire, you get $75,000".
Interviewed on ABC radio on Thursday, Mr Hockey rejected the suggestion there was any conflict between the Coalition's parental leave plan and its drive to make government leaner.
''I do not accept that at all. We need every generation to get to work. For younger Australians, you're either going to have to earn or learn. For middle-income Australians, middle-aged Australians, we need you in work. For older Australians we want you to have the opportunity to work," he said.
Mr Hockey also defended the government's $24 billion purchase of 58 Joint Strike Fighter aircraft.
"The first priority of the government is to defend the nation," he said. "There is strong deterrence value in having the very best fighter jets in the world."
Shadow assistant treasurer Andrew Leigh accused Mr Hockey of playing political games with the budget, after blocking the previous Labor government’s savings measures when in opposition.
He said that the Treasurer should acknowledge the fiscal impact of Coalition decisions to scrap measures such as the mining and carbon taxes.
‘‘What we’ve got now from Joe Hockey is really the shadow treasurer in drag,’’ Dr Leigh told ABC Radio.